Credit Suisse Global Investment Returns Yearbook 2020 ...
嚜澹ebruary 2020
Summary Edition Credit Suisse Global
Investment Returns Yearbook 2020
Elroy Dimson, Paul Marsh, Mike Staunton
Thought leadership from Credit Suisse Research and the world's foremost experts
Coverage of the Summary Edition
This report is a summary version of the full
Credit Suisse Global Investment Returns Yearbook
2020, which is available in hardcopy only and
contains four deep-dive chapters of analysis
leveraging this unique dataset. The first chapter
of the printed Yearbook describes the coverage
of the DMS database, the industrial transformation that has taken place since 1900,
explains why a long-run perspective is important,
and summarizes the long-run returns on stocks,
bonds, bills, inflation and currencies over the
last 120 years. The second chapter of the 260page volume deals with risk and risk premiums,
documenting historical risk premiums around
the world and how they have varied over time.
The third chapter of the hardcopy book 每 which
is highlighted in this extract 每 turns to the very
contemporary topic of responsible investing.
The authors present conclusions drawn from
a wealth of academic studies as well as new
work of their own. They study the implications
of exclusionary screening, the limitations of the
ESG ratings that are the toolkit for many ESG
investors, and whether ESG screening genuinely
enhances performance. The authors show that
the route by which ESG investors can combine
the principles of responsibility with aims for
material capital appreciation is to proactively use
their powerful ※voice,§ and to harness the
voices of others to engage deeply with investee
companies. An active rather than passive
approach to ESG drives returns. The fourth
chapter of the full Yearbook focuses on factor
investing: size, value, income, momentum,
volatility and other smart-beta approaches to
asset management.
2
The full 2020 Yearbook concludes with an
in-depth historical analysis of the investment
performance of 26 global markets 每 23 countries
and three transnational regions.
To highlight the new and impactful research for
the 2020 Yearbook, the opening section of this
Summary Edition starts with an insightful and
broadly based review of ESG investing. The next
section looks at investing for the long term, with
a focus on long-run asset returns, risk and risk
premiums, and factor investing 每 all based on
evidence that runs from the beginning of 1900
to the start of 2020. The report concludes with a
short review of the investment performance of
the most important markets in the world since
1900, including China, Europe, Japan, Switzerland, the United Kingdom, the United States and
the World.
To access the full Credit Suisse Global Investment
Returns Yearbook or the underlying DMS dataset,
please consult page 44.
04 Preface
07 ESG investing
19 Investing for the long term
31 Individual markets
33 China
34 Europe
35 Japan
36 Switzerland
37 United Kingdom
38 United States
39 World
40 References
43 Authors
44 Imprint
45 General disclaimer/important information
Extracted from:
CREDIT SUISSE GLOBAL INVESTMENT
RETURNS YEARBOOK 2020
Elroy Dimson, Paul Marsh, Mike Staunton
emails: edimson@london.edu,
pmarsh@london.edu, and
mstaunton@london.edu
ISBN for full Yearbook 978-3-9524302-9-3
Cover photo: gettyimages, Bento Fotography
For more information, contact:
Richard Kersley, Head Global Thematic Research,
Credit Suisse Investment Banking,
richard.kersley@credit-, or
Nannette Hechler-Fayd'herbe, Chief Investment Officer,
International Wealth Management, Credit Suisse,
nannette.hechler-fayd'herbe@credit-
Copyright and acknowledgements:
See page 44 for copyright and acknowledgement
instructions, guidance on how to gain access to the
underlying data, and for more extensive contact details.
Summary Edition Credit Suisse Global Investment Returns Yearbook 2020
3
Global Investment Returns Yearbook
As the Global Investment Returns Yearbook
enters 2020, we move beyond a second decade
that has proved highly rewarding for global
investors with annualized real equity returns of
7.6% and a still robust 3.6% for bond investors.
While it might be argued that equities are in
many respects getting back much of what they
lost in the first decade of the millennium, making
returns over the 20-year period look less out
of keeping with the history books, the same cannot be said of bonds where the extended period
of premium real returns is unprecedented.
The backdrop has of course remained one of
exceptionally low nominal and real interest rates
supporting the value of all financial assets both in
developed and emerging markets, a legacy of the
Global Financial Crisis. A number of government
bond markets have nominal long bond yields still
rooted in negative territory, while many corporates
enjoy the related benefit of also borrowing at
negligible cost to retire equity, with central
banks at the same time often happy to buy
the paper they issue. Curious times indeed.
4
The value of a study that is shaped by more
than a century of financial history is its ability to
remind us how exceptional conditions such as
these are and the need to check ourselves when
we hear the typically costly phrase uttered ※it*s
different this time.§ An equity risk premium exists
for a reason; namely, the volatility of equity returns.
Credit Suisse*s House View does indeed see a
healthy range of sources of potential volatility in
the year ahead 每 corporate profit margins peaking,
high levels of corporate debt from the releveraging
we have seen, a polarized political backdrop in a
US election year, and monetary easing that has
all but run its course.
Being paid to take the risk
Beyond the immediate outlook, an ongoing and
lively discussion remains as to what the equity
risk premium should be in the years ahead. It
assumes crucial significance with risk-free rates
that are close to zero. In such circumstances,
the return on equities is simply the payment for
taking risk. The authors continue to stress that
investors should assume a sober view of the likely
excess returns equities can generate from here.
This is not just judged against the standards
of the last decade, but also by comparison with
the annualized 4.3% premium relative to bills
observed across the life of the Yearbook. A more
tempered view is in many respects a natural consequence of the world of low real interest rates in
which we are living. The study has shown that,
when real rates are low, future returns on equities
and bonds tend to be lower rather than higher.
Shifts from one real interest rate environment to
another can see step changes in returns as investors adjust their future expectations. The reset
since the Global Financial Crisis as real rates collapsed has driven superior returns. Should a turn
in the monetary cycle see an upward jump in real
interest rates, the reset in financial assets can be
in the opposite direction. This is still a scenario
to keep in mind. The working premise that the
authors still believe investors should factor into
their long-term thinking and modelling is an annualized equity premium relative to cash of around
3?%. This is a consistent view they have held
throughout this millennium. The prevailing
straight-jacket of low real interest rates provides
no reason to change it.
The ESG revolution
If low real interest rates are influencing the level
of the equity risk premium, ESG investing is reshaping the nature of asset management. Investments with products linked to environment,
social and governance (ESG) issues now exceed
USD 31 trillion. The 2020 Yearbook adds to the
body of thematic ESG work with a comprehensive
and objective examination of the challenges for
investors integrating the considerations of ESG
factors into their investment approach.
Conscious of the tendency of many to advocate
for or against rather than genuinely analyze the
merits of ESG, the authors present conclusions
drawn from a wealth of academic studies as well
as new work of their own. The study specifically
analyzes the implications of exclusionary screening, the most prevalent of ESG approaches; the
role of and, more specifically, limitations of the
respective ESG ratings that invariably form the
toolkit for many ESG investors; and whether
ESG screening genuinely enhances returns.
For those pursuing exclusion-based strategies,
the good news is that, over the longer term, such
strategies need not compromise diversification
and relative risk-adjusted returns. The caveat is
that the shorter term can lead to significant deviation from such longer-term results, both positively
and negatively. This could prove a material issue
for the providers of ESG investment products if
their performance is judged on a shorter-term
time horizon. Quantitative strategies to mitigate
such volatilities may assume a key significance.
For those relying on ESG screening to enhance
returns and reduce risk, there is a vast literature
with sometimes conflicting results depending on
time horizons and approaches taken. However,
long-term evidence dating back more than 20
years finds no conclusive evidence of this. This
is in part due to lack of consistent data and
universal agreement on what defines E, S and G
or perhaps it is a logical reflection of efficient
markets. However, neither does there seem to
be a high price to be paid for ethical principles.
The authors* work shows that the way ESG
investors can combine principles of responsibility
with aims for material capital appreciation is to
proactively use their powerful ※voice.§ They should
also harness the ※voices§ of others to engage
deeply with companies to drive change rather than
※exit§ through policies of exclusion. An active rather
than passive approach to ESG drives returns.
Factor investing meets ESG investing
If new ESG strategies are progressively dominating
the investment landscape, factor investing and
smart beta strategies also remain very much in
vogue. According to FTSE Russell, 65% of
European asset owners had adopted smart
beta strategies by 2019. The 2020 Yearbook
refreshes its analysis of factor returns around the
world. It is designed to probe more robustly into
the stability of a series of specific factors and their
premia with the benefit of a long history of data.
It is hard to ignore the very weak performance
of value since the Global Financial Crisis and
extending into 2019 with yet another year of
negative factor returns. It arguably stands out as
another consequence of the low interest rate
world which so rewards duration. However, and
with alarming circularity, a moot point is whether
ESG investing and the weight of flows attracted
to it intrinsically carry negative consequences for
value when one considers the sectors most likely
impacted by exclusions.
The 2020 Yearbook is published by the Credit
Suisse Research Institute with the aim of delivering
the insights of world-class experts to complement
the research of our own investment analysts. For
previous editions and other studies published by
the Research Institute, please visit:
researchinstitute.
Richard Kersley
Head Global Thematic Research,
Credit Suisse Investment Banking
Nannette Hechler-Fayd'herbe
Chief Investment Officer,
International Wealth Management, Credit Suisse
Summary Edition Credit Suisse Global Investment Returns Yearbook 2020
5
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